Debt Investor Update FY16 Covered Bond - Suncorp … GROUP LIMITED ABN 66 145 290 124 RELEASE DATE 4...

SUNCORP GROUP LIMITED ABN 66 145 290 124 RELEASE DATE 4 AUGUST 2016

Debt Investor Update FY16 Covered Bond

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Suncorp Debt Investor Update Agenda

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Suncorp Group

Group Financial Results

Capital

Suncorp Bank

Funding & Liquidity

Mortgage Origination

Covered Bond

Suncorp Group Limited 04 August 2016 2

Suncorp Group Leading financial services brands in Australia and New Zealand

Top 20 ASX listed company

$16 billion market capitalisation at 30 June 2016

$96 billion in group assets

13,500 employees in Australia and New Zealand

Approximately 9 million customers

End-to-end ownership of brands


Group Capital Structure

Ordinary dividend – 60-80% of cash earnings

100% of distributable earnings

Maintain capital targets

General Insurance

Bank (Suncorp Metway Ltd)

Life

Shareholders Surplus returned to shareholders

• Suncorp Metway Ltd is the entity that issues senior debt instruments on behalf of the Bank

• AAI Limited and SIF Limited are the entities that typically issue sub-debt instruments on behalf of General Insurance

• Suncorp Group Limited is typically the entity that issues Basel III compliant CPS and T2 sub-debt


Surplus assets

Suncorp Group

GI Life Bank

Group Financial Results

“Creating value for our customers”

FY16 Suncorp Group Result Overview Diversified business model provides earnings stability

(1) Includes investment income and interest expense for capital held at the Group level, consolidation adjustments, Tyndall disposal, non-controlling interests, transaction costs, and operating model restructuring costs.


FY16 ($m)

FY15 ($m)

General Insurance 624 756 Bank 393 354 Suncorp Life 142 125 Business Lines NPAT 1,159 1,235 Other(1) (70) (44) Cash earnings 1,089 1,191 Acquisition amortisation (51) (58) Reported NPAT 1,038 1,133 Ordinary dividend (per share fully franked) 68 cents 76 cents

Diversification of earnings Suncorp Group business line NPAT ($m)

105 (60)

8 12 18

493 883 1,010 756 624

289

289 228

354 393

146

120 84 113 124

(263) (632) (496)

770

600 834 1,235 1,159

FY12 FY13 FY14 FY15 FY16


■ General Insurance ■ Bank

■ Non-core Bank / Life write down of intangible assets

■ Life underlying NPAT ■ Life market adjustments

Positive underwriting result, impacted by volatility in investment markets General Insurance

Key highlights • GWP growth across all

business units resulting in solid underlying growth

• Underlying ITR of 10.6%

• Operating expenses ratio

of 22.0% • Impacted by lower

investment returns and MTM adjustments

• Reserve releases of

$347m or 4.4% of NEP

8

FY16 ($m)

FY15 ($m)

Change (%)

GWP 9,031 8,872 1.8

Net earned premium 7,938 7,865 0.9

Net incurred claims (5,661) (5,587) 1.3

Operating expenses (1,749) (1,783) (1.9)

Underwriting result 528 495 6.7

Investment income - insurance funds 254 399 (36.3)

Insurance trading result 782 894 (12.5)

Investment income - shareholder funds 101 163 (38.0) Managed schemes, JVs and funding costs

(8) 3 n/a

Income tax (251) (304) (17.4) NPAT 624 756 (17.5)

Suncorp Bank Another period of strong profitability

loans and advances

now in place NPAT

Suncorp Group Limited 04 August 2016

393 354 11.0

9

FY16 ($m)

FY15 ($m)

Change (%)

Net interest income

1,129

1,103

2.4

Key highlights • 4.5% total lending growth

Net non-interest income 88 107 (17.8) Total income 1,217 1,210 0.6 • NIM increased to 1.86% Total operating expenses (639) (646) (1.1) • Cost to income ratio Profit before impairment losses on loans and advances Impairment losses on loans and

578 564 2.5 reduced to 52.5%

• Impairment losses advances (16) (58) (72.4) reduced to 3 bps of gross Bank profit before tax 562 506 11.1

Income tax (169) (152) 11.2 • Core banking platform

Suncorp Life Improvement due to $21 million of positive claims and lapse experience

Key highlights • In-force premium growth

and benefits of repricing

• Sustainable growth as in-force premiums increased to $1.0 billion, with focus on value over volume

• Two successive years of

positive claims and lapse experience


FY16 ($m)

FY15 ($m)

Change (%)

Planned profit margin release 45 38 18.4

Claims experience 6 8 (25.0)

Lapse experience 15 7 114.3

Other experience (10) (8) 25.0

Underlying investment income 31 31 -

Superannuation 37 37 -

Total Life underlying profit after tax 124 113 9.7

Market adjustments 18 12 50.0

NPAT 142 125 13.6

Group Operating expenses ($m) Stable over time

899 877 902 881 892 857

305 319 322 324 326 313

150 153 142 139 142 139

1,354 1,349 1,366 1,344 1,360 1,309


1H14

2H14

1H15

2H15

1H16

2H16

General Insurance Bank Life

Capital


1.21x 1.23x 1.22x

1.67x

SUN Peer 1 Peer 2

14.02% 14.08% 1.80x 1.72x

9.21% 8.80% 8.24% 10.47% 10.24% 9.81% 9.69%

13.53% 12.45% 12.66%

13.68% 13.25%

SUN Regional 1Regional 2 Major 1 Major 2 Major 3 Advanced basis

Major 4 Standardised

Strong Bank and General Insurance capital ratios compared to targets and peers

Bank capital ratios General Insurance capital ratios

Capital Position

Additional $148 million capital held at Suncorp Group level

CET1 Target

(8.5% - 9.0%

RWA)

CET1 Target (0.95 - 1.15x PCA)

Suncorp Group Limited 04 August 2016 Source: Latest published company reports 13

CET1 AT1 Tier 2

14

Capital Position

(1) Capital ratios are expressed as coverage of the PCA for General Insurance and Life, and as a percentage of Risk Weighted Assets for the Bank. (2) The Bank and General Insurance targets are shown as the midpoint of the target operating ranges. (3) Group dividend net of expected shares issued under the Dividend Reinvestment Plan.


GI (2) Bank (2) Life SGL, Corp Services &

Consol

FY16 Total

FY15 Total

CET1 2,827 2,896 467 148 6,338 6,629 CET1 Target 2,445 2,753 357 (3) 5,552 5,416 Excess to CET1 Target (pre div) 382 143 110 151 786 1,213 Group Dividend (3) (440) (643) Group Excess to CET1 Target (ex div) 346 570 CET1 Coverage Ratio (1) 1.21x 9.21% 1.80x 8,860 9,176

Total Capital 3,890 4,255 567 148

Total Target Capital 3,492 3,854 419 (22) 7,743 7,555 Excess to Target (pre div) 398 401 148 170 1,117 1,621 Group Dividend (3) (440) (643) Group Excess to Target (ex div) 677 978 Capital Coverage Ratio (1) 1.67x 13.53% 2.18x

CET1 Capital Base - FY16 movements ($m)

15

570

346

1,038

100 73

163 146

74 128 98 826

Excess CET1 FY16 NPAT FY15

GI excess technical provisions

GI PCA (Insurance

and Assets Risk charge)

Bank growth Life policy liability

adjustment (DAC)

Bank Project Ignite

SGL Target change

Other including

NZD

FY16 Dividends

(net of DRP)

Excess CET1 FY16


Group Risk Based Capital Capital volatility by key risk type

16

62%

24%

3% 11%

Suncorp Group

■ Insurance Risk ■ Market Risk

■ Operational Risk ■ Counterparty Credit Risk

GI 3%3%

73%

21%

Life 7%

36% 57%

86%

Bank

27%

8% 65%

Corporate

14%

Capital Instruments Outstanding at 30 June 2016

* Additional information is available in appendix 3 of the Analyst Pack. During the 2015/16 financial year, AAI Limited issued $225 million of Tier 2 capital in the form of subordinated debt. Suncorp will continue to monitor similar opportunities across markets.

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Semi-annual coupon rate / margin above 90 day BBSW

Optional Call / Exchange Date

Issue Date 30 JUNE 2016 Total Balance

Regulatory Capital GI Bank Life SGL

$M $M $M $M $M $M AAIL Subordinated Debt* 330 bps Nov 2020 Nov 2015 225 - - - 225 225

AAIL Subordinated Debt 6.75% Oct 2016 Oct 2006 101 - - - 101 108

AAIL Subordinated Debt - June 2017 Oct 2007 229 - - - 229 220

SGL Subordinated Debt 285 bps Nov 2018 May 2013 - 670 100 - 770 770

SML FRCN 75 bps Perpetual Dec 1998 - 72 - - 72 72

Total subordinated debt 555 742 100 - 1,397 1,395

SGL CPS2 465 bps Dec 2017 Nov 2012 110 450 - - 560 560

SGL CPS3 340 bps June 2020 May 2014 400 - - - 400 400

Total Additional Tier 1 Capital

510 450 - - 960 960

Total 1,065 1,192 100 - 2,357 2,355

Suncorp Bank


Suncorp Bank Key ratios Lending growth (annualised)

4.55%

0.77%

3.65% 3.93%

FY13 FY14 FY15 FY16

Net interest margin (interest-earning assets)

1.85%

Cost to income ratio

1.64% 1.72%

1.86%

FY13 FY14 FY15 FY16

59.20% 57.40%

53.39% 52.51%

FY13 FY14 FY15 FY16

Impairment losses to gross loans and advances (annualised)

0.78%

0.25% 0.11% 0.03%

FY13 FY14 FY15 FY16

Return on Common Equity Tier 1

13.2%

Deposit to loan ratio

8.2% 12.2%

(14.7%) FY13 FY14 FY15 FY16

65.5% 65.8% 65.8%

66.7%

FY13 FY14 FY15 FY16 19

0.3%

Total lending assets $54.3 billion Retail banking market share Suncorp Bank

9.1%

0.9% 0.2%

9

1

135

Branch

Business centre

ATM 15 122

9

512

40

2

331 9

1

1

1

133

1

0.5%

81%

10% 8%

1% Portfolio

54% 25%

10%

4% 7%

Geography

■ Commercial (SME) ■ Housing ■ Agribusiness ■ Consumer

■ NSW ■ QLD ■ VIC ■ SA & Other ■ WA

Points of Presence

0.2%

0.5%


473 Source: Roy Morgan

41 20

Housing Commercial (SME)

Corporate & Property

Suncorp Bank Evolution of the lending portfolio

FY16 lending portfolio $54.3 billion

1%

81%

FY09 lending portfolio $54.4 billion

2%

8%

10% 30%

52%

10% 6%


Agribusiness Other 21

FY09 FY16

Exposures over $50m

121 1

Margin 1.68% 1.86%

Impaired assets

$1,474m $150m

Impairment losses

$710m $16m

35%

65%

Suncorp Bank Home lending assets $44.3 billion

70%

30%

50%

28%

11%

Portfolio by geography 3%

8%

Portfolio by borrower type Portfolio by channel


■ Direct ■ Intermediaries ■ Owner occupied ■ Investor ■ Queensland ■ New South Wales

& ACT

■ Victoria ■ Western Australia ■ Other

Suncorp Bank Commercial (SME) assets $5.4 billion

53% 18%

16%

20%

11%

35%

15% 8%

7%

5%

12%

75%

14%

11%

Portfolio by industry Portfolio by geography Portfolio by exposure size

■ Queensland ■ New South Wales ■ Other

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■ < $5 million ■ $5-$10 million

■ $10-$25 million ■ $25-$50 million

■ Property investment ■ Hospitality & accommodation ■ Construction & development ■ Manufacturing & mining

■ Retail ■ Other

■ Services (including professional services)

49%

20%

25%

6%

Suncorp Bank Agribusiness assets $4.4 billion

29%

31%

61% 10%

8%

3% 3%

16%

29%

10%

Portfolio by geography Portfolio by industry Portfolio by exposure size

■ Queensland ■ New South Wales ■ Other

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■ < $5 million ■ $5-$10 million

■ $10-$25 million ■ $25-$50 million

■ Beef ■ Grain & mixed farming ■ Sheep & mixed livestock ■ Cotton

■ Sugar ■ Fruit ■ Other

Credit quality – gross impaired and past due loans Gross impaired loans by segment ($m) Past due home loans (% gross home loans)

333

Suncorp Bank

26 31 27

208 125 117

99

62 62

218 206

FY14 FY15 FY16

0.98% 0.93%

0.74% 0.78% 0.69%

0.79%

0.05% 0.03%

1H14 2H14 1H15

Total home lending HL loss rate

2H15 1H16 2H16

Home lending impaired


■ Retail lending ■ Agribusiness lending

■ Commercial (SME) lending

Suncorp Bank Home lending assets $44.3 billion

61% 62% 64% 66% 69% 71%

22% 23% 24% 22% 22% 22% 17% 15% 12% 12% 9% 7%

1H14 2H14 1H15 2H15 1H16 2H16 1H14

Home lending assets by LVR Home lending new business by LVR

66% 71% 83% 87% 88% 86%

8% 12%

12% 10% 10% 13% 26% 17%

5% 3% 2% 1%

2H14 1H15 2H15 1H16 2H16

■ 0 - 80% ■ 80.01 % - 90%

Suncorp Group Limited 04 August 2016 ■ 90.01% +

26

Suncorp Bank Credit quality - impairments

0.03%

0.17%

0.09%

0.17%

0.21%

0.14%

0.32%

Impairment losses to gross loans Net impaired loans to gross loans

0.28% 0.29%

0.43%

0.26%

0.20%

0.30% 0.29%

Suncorp Group Limited 04 August 2016 Source: Latest peer financial reports 27

SUN

Regional

Regional Major 1

Major 2

Major 3

Major 4

SUN

Regional 1 Regional 2

Major 1

Major 2

Major 3

Major 4

1 2

Asset growth and credit quality

Commercial (SME) portfolio 5,772

Suncorp Bank

1.16

%

Agribusiness portfolio 4,624

5,531 5,353 5,356

0.92

%

0.88

%

1.16

%

FY13 FY14 FY15 FY16

Commercial portfolio ($m) Gross impaired assets/Total portfolio (%)

4,311 4,400 4,360

3.22

%

4.50

%

2.83

%

2.68

%

FY13 FY14 FY15 FY16

Agribusiness portfolio ($m) Gross impaired assets/Total portfolio (%)


9.21

%

8.80

%

8.24

%

10.4

7%

10.2

4%

9.81

%

9.69

%

12.45% 12.66%

Total capital Risk weighted assets

4,255 31,459 13.53% 14.02% 14.08% 13.68% 13.25%

SUN Regional Regional 1 2

Standardised

Major 1 Major 2 Major 3 Advanced basis

Major 4

108

28,000

3,351

Suncorp Bank Capital Capital ratios vs Peers

■ Common Equity Tier 1 ■ Additional Tier 1 ■ Tier 2

■ Credit risk ■ Market risk ■ Operational risk ■ Common Equity Tier 1

■ Additional Tier 1

(8

Suncorp Group Limited 04 August 2016 ■ Tier 2 29

CET1 Target

.5% - 9.0% RWA)

909 13.53% RWA

450 9.21% RWA

2,896

Funding & Liquidity


Suncorp Bank Long-term funding profile ($m)

1,400 1,200 1,000

800

600

400

200

0

Aug

16

Oct

16

Dec

16

Feb

17

Apr

17

Jun

17

Aug

17

Oct

17

Dec

17

Feb

18

Apr

18

Jun

18

Aug

18

Oct

18

Dec

18

Feb

19

Apr

19

Jun

19

Aug

19

Oct

19

Dec

19

Feb

20

Apr

20

Jun

20

Aug

20

Oct

20

Dec

20

Feb

21

Apr

21

Jun

21

Covered bond Domestic senior unsecured Offshore senior unsecured


Suncorp Bank Ratings and Benchmark Transactions

• Strong Bank issuer credit rating of A+/A1/A+ creates genuine competitive advantage to other regional banks

• Suncorp Bank has issued in A$, US$, EUR, GBP, JPY & Asian currencies with all funds swapped into A$

• Modest term funding requirements for FY16/17


Issue Date Amount Tenor

Covered Bond

Jun 2016 A$500m 5yr FRN

Oct 2014 A$950m 5yr FRN/5yr Fixed

Nov 2012 A$600m 5yr Fixed

Jun 2012 A$1.1bn 4.5yr Fixed

Senior Unsecured (Benchmark)

May 2016 US$500m 3yr Fixed

Apr 2016 A$750m 5yr FRN/Fixed

Oct 2015 A$750m 5yr FRN/Fixed

Apr 2015 US$600m 5yr Fixed

Sep 2014 GBP250m 3yr FRN

Apr 2014 A$750m 5yr FRN

Mar 2014 US$850m 3yr FRN/Fixed

RMBS

Mar 2015 A$1.25bn 4yrs Weighted Average

May 2013 A$1.15bn 4yrs Weighted Average

Ratings Agency Short Term Long Term

Standard & Poors A-1 A+ (stable)

Fitch F1 A+ (stable)

Moodys P-1 A1 (stable)

Mortgage Origination


Suncorp Group Limited

Home Loan Underwriting Process Suncorp Bank Mortgage Portfolio

Approved

Suncorp Central Processing Area

SUNCORP CENTRES AGGREGATORS

Automated Credit Scoring Model

‘Sunloans’

35% 65% Customer

Referred

Delegated Credit Authority ‘DCA’

13% Declined

57%

30%

Referred Approved

Declined Approved

60%

13%

• Suncorp has a custom built origination system called Sunloans

• This system has an automated decision engine model (scorecard) which reflects the Bank’s risk strategy and underwriting criteria

• Underwriting that is not approved via the scorecard is completed by accredited Suncorp staff under a Delegated Credit Authority approved by the Chief Risk Officer *

• Aggregators/ Brokers have no approval authority

• Post approval, audits are performed regularly by the hindsight review team and QBE LMI for LMI loans

* Delegated by the Chief Risk Officer to Executive Manager Credit Oversight and 04 August 2016 34 Assurance for Delegated Credit Authority below Banking Credit.

Suncorp Bank Mortgage Portfolio Underwriting criteria & valuation requirements


Underwriting Criteria Valuation Requirements

Overview: • Underwriting criteria is built into Suncorp’s automated Credit Scoring Model – • Credit Bureau reports required for all borrowers. Where report is not satisfactory, loan

is referred via the scorecard to a higher approval authority for decision • Delegated Credit Authorities are held in the Banking Credit team and selected

Lending Staff who are achieving benchmark results in Compliance

Overview: • All valuations are undertaken by Accredited Panel Valuers appointed by Suncorp • Suncorp utilises approx. 120 valuers nationwide • Independent valuations undertaken for approx. 85% of loans on Suncorp’s balance

sheet

Serviceability: • Customer serviceability determined via an assessment of affordability using the

greater of the “floor” rate (5 year BBSW average for the previous quarter + 3% buffer + an overlay of 171bps) or the actual Customer product rate + 2%

• Confirmation and stability of employment investigated and appropriate income details required

• To verify loan affordability, Minimum Household Living Expenses are aligned with income. These allowances are updated quarterly and align with recognised indices

Valuations are required: • Loans with LVR > 70% (subject to the purpose & loan amount) • For metro properties if loan amount > $500,000 ** • For non metro properties if loan amount > $300,000 ** • Suncorp valuations are processed via the valuation management system (VMS),

which is a fully automated system supplied by Core Logic that links the Bank to the Valuation firms – the selection of a valuer is random and controlled by the system.

• Credit Policy and valuation rules are applied via the valuation decision maker (VDM), which determines the type of valuation to be used for a particular scenario

• Lenders / Banking Credit can override the system and request a full valuation. ** If the LVR is <= 80% and the loan amount is < $1M, a valuation may not be required if the contract of sale is acceptable and the Bank can validate same**

Acceptable loan security: • Parameters establish acceptable security types, acceptable geographic locations,

maximum LVR and maximum loan amounts for particular locations • For fully verified loans, maximum LVR (inclusive of LMI fee) is capped at 95% LVR,

with maximum LVR for Interest Only and Investor loans capped at 90% • All loans are supported by registered 1st mortgage with full recourse to the borrower

Panel valuers are individually accredited based on: • Industry qualifications • Current professional development certificates • Minimum $1m professional indemnity insurance cover • Approval by Suncorp Banking Credit and LMI sign off

Suncorp Bank Mortgage Portfolio Mortgage brokers


Broker Accreditation Requirements Overview of Mortgage Brokers

Formal accreditation process: • Must have ASIC issued Australian Credit License or be appointed as a Credit

Representative by a license holder

• Must be a member of an approved Aggregator group • Must be a member of the Mortgage and Finance Association of Australia or

Finance Brokers Association of Australia (MFAA or FBAA) • Cannot be registered without full industry accreditation (e.g. National Consumer

Credit Protection (NCCP) training)

• Ongoing training requirements also need to be achieved

Broker responsibilities: • Act as intermediaries between the borrower and Suncorp in the initial phase of

mortgage origination • Act solely as originators of loan applications and have no authority to perform any

part of the loan assessment, approval or servicing

• Validation of employment and income data conducted by Suncorp staff

Experience and training (administered by Aggregators): • Must have a minimum of 2 years industry experience • Must be a member of the Mortgage and Finance Association of Australia or

Finance Brokers Association of Australia (MFAA or FBAA) and be personally identified (e.g. 100-point check)

• Have a Certificate IV in Mortgage Lending

• Subject to clear Australian Federal Police checks

• Must hold Professional Indemnity Insurance

An annual review process is performed by Channel Management on Aggregator relationships and includes:

• The quality/quantity of mortgage applications

• Percentage of Suncorp business and arrears

• Portfolio trends compared to industry averages

• Changes in ownership

• Fraudulent and suspicious activity

Comprehensive arrears management Suncorp Bank Mortgage Portfolio

Customer Contact Strategy (Collections)

Day 1 – Day 60

Mitigation Strategy (Recoveries)

Day 60 – Day 90

Legal Process and Asset Realisation (Repossessions)

90 + Days • System generated arrears notice sent on Day 7

• After Day 7 continuous contact via predictive dialler

• Aim to elicit “Promise to Pay”

• 14 full-time Officers dedicated to covering outbound calls

• 5 full-time Officers dedicated to covering inbound calls

• Default Notice / Notice to Exercise Power of Sale 30 days

• Staff target 80-85 contacts per person per day

• Customer transferred to Late Collections Team (5 staff)

• Notice to Quit issued

• Strict adherence to NCC Guidelines

• Approval of Hardship Cases on application basis

• QBE LMI send arrears report at 60 days

• Lodge Statement of Claim with Supreme Court

• File Writ of Possession

• Judgement and execute warrant for vacant possession

• Obtain valuation, recommend real estate agent and complete any capital works as required

• Repossessions Team focus on loss mitigation strategy (5 staff)

• Auction and sale of property

• LMI claim made for any shortfall


Covered Bond


Australian Covered Bond Legislation


Priority • Bondholders have priority against a cover pool of financial assets • APRA has no direction making powers over assets held by the SPV for the benefit of the covered bondholders and service

providers

Timing • Covered Bond issuances previously prohibited by Banking Act and Regulator • Legislation was passed on 13 October 2011 to amend Banking Act and enable Australian banks to issue covered bonds

Structure • Covered bond issuance only permitted in accordance with the legislative framework • Segregation of cover assets against a cover pool of financial assets • Legal certainty for the segregation of the cover pool in the event of bankruptcy of the issuing ADI

Cover Pool • Eligible cover assets include cover pool assets with maturity less than 100 days (limited to 15%), Australian government or semi- government bonds, residential or commercial mortgage loans (separate programmes expected for each loan class), and derivatives

• Minimum level of over-collateralisation of 3% (programmes also to include an asset coverage test) • Value only provided up to 80% LVR for residential loans and 60% for commercial loans • Senior ranking voluntary over-collateralisation is excluded

Issuance limits • Covered bond issuance not permitted if cover assets exceeds 8% of ADI’s Australian assets • Capital neutral for ADI if the cover pool is less than 8% of ADI’s Australian assets • Implies potential combined covered bond issuance of circa A$130bn by four major ADIs • Implies potential covered bond issuance of circa A$4bn by Suncorp

Suncorp Covered Bond Programme


Programme Summary

Issuer Suncorp-Metway Limited

Issuer Rating Fitch: F1 / A+ Moody’s: P-1 / A1

Covered Bond Rating Fitch: AAA Moody’s: Aaa

Programme Limit US$5.0 billion

Total Covered Bonds Outstanding A$3.15 billion (of which $1.1billion maturing Dec 2016)

Maturity Options Soft Bullet (Extended Due for Payment Date)

Covered Bond Guarantor Perpetual Corporate Trust Limited as trustee of the Covered Bond

Covered Bond Guarantee The CBG has agreed to pay an amount equal to the Guaranteed Amounts in respect of the covered bonds when the same shall become Due for Payment and which has otherwise been unpaid by the Issuer

Obligations of the CBG under the guarantee constitute direct and unconditional obligations Recourse to the CBG is limited to the secured assets

LVR Cap in Asset Coverage Test 80%

Asset Percentage Subject to rating agency requirements, programme max 95%

Collateral Australian Prime Residential Mortgages

Governing Law New South Wales, Australia

Suncorp Covered Bond Programme • Covered Bond Legislation enabled October 2011 • Issuance permissible by APRA under legislation pending prudential

standards during 2012 • Cover assets separation via special purpose vehicle • Maximum issuance capped at 8% of Suncorp ADI assets in

Australia • Independent cover pool monitor and Trustee • SUN cover pool will closely resemble APOLLO RMBS which

reflects conservative lending standards • Given precedence set by majors, SUN will look to replicate

structural features wherever possible to ease investor due diligence process

• Programme documentation completed with first A$ covered bond in June 2012, subsequently in Nov 2012, October 2014 and June 2016

• Modest programme size of US$5bn


Indicative Cover Pool (at 31 July 2016)

Size A$3.753bn Number of Loans 16,838 Average Loan Size (A$) $222,901.88 Maximum Loan Size (A$) $1,866,836 Weighted Average Current LVR 69.02% Weighted Average Seasoning 66 months Owner Occupied 77.54% / Investment 22.46% Metro 62.77% / Non Metro 37.23% Fixed rate Loans 14.08% Interest Only Loans 15.87% Arrears >30 days by current balance 0.52%

Fully Verified Loans 100.00% Over Collateralisation Level 27.0%

Expected Rating Aaa/ AAA Rating Agency Providers Moody's / Fitch Indexation Provider APM

Covered Bondholder

Suncorp-Metway Limited (Issuer)

Trustee of the Suncorp Covered Bond Trust

(Covered Bond Guarantor)

Covered Bond Swap Provider

Interest Rate Swap Provider

Suncorp-Metway Limited (Seller and Servicer)

Covered Bond Proceeds

Bond Interest

Intercompany Loan

Loan Interest

Consideration Mortgage Loans and Related Security

Security Trust Deed

P.T. Limited (Security Trustee)

Covered Bond Structure

1. Trustee of the Suncorp Covered Bond Trust is providing Covered Bond Guarantee to CB Investors as per Security Trust Deed

2. The Intercompany Loan (“ICL”) is made up of a Guarantee Loan (“GL”) and Demand Loan (“DL”) component -The GL is equal to the amount of covered bonds outstanding plus the required over-collateralisation amount - The DL is equal to any voluntary over-collateralisation


in excess of the GL amount 42

Programme Highlights


Structure Full recourse to a highly rated financial institution (Suncorp, A+/A1/A+) and security over a portfolio of first ranking Australian mortgages.

Over-Collateralisation Prior to a Notice to Pay, the Asset Coverage Test is performed on each Calculation Date to ensure there are sufficient assets to support the outstanding Covered Bonds. After a Notice to Pay, the Amortisation Test is similarly performed on each Calculation Date.

Security Mortgages are legally transferred, by true sale, to the bankruptcy remote Covered Bond Guarantor to ensure Covered Bondholder has priority claim over the cover pool at issuer insolvency.

Asset Monitor KPMG has been appointed to monitor the calculation of the Asset Coverage Test and the Amortisation Test on at least an annual basis.

Hedging Interest Rate Swaps and Covered Bond Swaps are used to hedge any exposure of the Covered Bond Guarantor to interest rate and currency risks.

Structural Enhancements


Over-Collateralisation • Prior to a Notice to Pay, the Asset Coverage Test is performed on the Determination Date to ensure sufficient assets to support the value of outstanding covered bonds

• After a Notice to Pay, the Amortisation Test is performed on each Determination Date to ensure sufficient cash to pay any maturing bonds

Indexation • The nominal value of assets in the collateral pool will be adjusted to reflect changes in house prices, by postcode, using a reliable and widely used measure such as APM (Australian Property Monitors)

• The Asset Coverage Test (ACT) and Amortisation Test incorporate the use of the Indexed Valuation for each property

• The ACT provides for 100% of any declines in the indexed property market values and 85% of any gains in the indexed property market values

• Housing Loans in arrears by more than 90 days receive zero value

Interest Rate Swap • This swap hedges interest flows on the cover pool for a spread over 1 month BBSW + margin to cover the payment obligations of the Trust, including interest on the Intercompany Loan & Demand Loan and expenses of the trust

• Swaps will be provided by SUNCORP and will be required to post collateral, obtain guarantees or be replaced if specified rating triggers occur

Covered Bond Swap • Where covered bonds are issued in a currency and / or interest basis different to the Interest Rate Swap, the Covered Bond Guarantor will enter into a Forward Starting (or Non-Forward Starting ) Covered Bond Swap

• Swaps will be provided by SUNCORP (or a third party for offshore issuance) and will be required to post collateral, obtain guarantees or be replaced if specified rating triggers occur

Ratings Triggers If any of the following occur


Pre Maturity Test Moody’s : below P1 Fitch : below F1+

Not applicable as Suncorp will issue Soft Bullet Covered Bonds. In the event that Suncorp issued Hard Bullets the following Pre-Maturity test would apply. The Pre-Maturity Ledger must be funded by the A$ Equivalent of the Required Redemption Amount for the Hard Bullet Covered Bonds maturing within the next 12 months. Failure to remedy a breach of the Pre-Maturity Test within the required timeframe will cause an Issuer Event of Default to occur.

Reserve Fund Moody’s : below P-1 Fitch : below F1

An amount equal to A$ equivalent of three months’ interest and expenses must be credited to the Reserve Fund.

Swap Collateralisation & Replacement

Fitch : below F1 / A Swaps must be cash-collateralised (one way CSA) within 14 calendar days of a ratings trigger event. Suncorp Bank must replace itself as a swap counterparty if Suncorp Bank’s Fitch rating falls below F2 / BBB+.

Moody’s : below P-1 / A2 Swaps must be cash-collateralised (one way CSA) within 30 calendar days of a ratings trigger event. Suncorp Bank must replace itself as a swap counterparty if Suncorp Bank’s Moody’s rating falls below P-2 / A3.

Transfer Trust Bank Account

Moody’s : below P-1 Fitch : below F1 / A

The Covered Bond Guarantor must transfer it’s bank account from Suncorp Bank to a third party.

Servicer Downgrade Moody’s : below P-1 Fitch : below F1 / A

Suncorp Bank will be required to transfer all collections to the GIC account within 2 local business days (and must replace itself as Servicer if Suncorp’s ratings falls below Baa3 / BBB-).

• Tested on each Calculation Date prior to the service of a Notice to Pay • The ACT is designed to protect Covered Bondholders by ensuring that the value of cover pool assets is greater than the AUD equivalent of outstanding

covered bonds • If an Asset Coverage Test Breach Notice has been served and not deemed to be revoked by the Bond Trustee as of the Test Date following service of

an Asset Coverage Test Breach Notice, then an Issuer Event of Default will occur

Adjusted Aggregate Loan Amount will be the lower of:

Asset Coverage Test (ACT)

a) the sum of the LTV Adjusted Outstanding Principal Balance of each Mortgage Loan, which shall be the lower of: i. actual Outstanding Principal Balance of the relevant

Mortgage Loan; and ii. the aggregate of the Indexed Valuation of each Property

relating to that Mortgage Loan, multiplied by M, where M=0.8 for each Mortgage Loan that is not a Defaulted Loan and M=0 for each Defaulted Loan

less the aggregate sum of Mortgage Loans in breach of Reps and Warranties

≥

b) the sum of the Asset Percentage Adjusted Outstanding Principal Balance of each Mortgage Loan, which shall be the lower of: i. actual Outstanding Principal Balance of the relevant

Mortgage Loan; and ii. Valuation of each Property relating to that Mortgage Loan

multiplied by N, where N=0.8 for each Mortgage Loan that is not a Defaulted Loan and N=0 for each Defaulted Loan

The result being multiplied by the Asset Percentage less the aggregate sum of Mortgage Loans in breach of Reps and Warranties

+ −

Unused proceeds from Intercompany Loan

Substitute Assets & Authorised Investments

Principal Receipts +

x

+

x WA remaining maturity of all Covered Bonds outstanding

Principal Amount of all Covered Bonds outstanding

Negative Carry Factor (zero whilst IRS in place)

Asse

t Cov

erag

e Te

st

Out

stan

ding

Cov

ered

Bon

ds (A

$ eq

uiv.)

═


IRS means Interest Returns Swap

46

Amortisation Test • Tested monthly on each Calculation Date following the service of a Notice to Pay • The Amortisation Test is designed to test whether the assets of the Covered Bond Guarantor available to meet its obligations under the Covered Bond

Guarantee have fallen to a level where Covered Bondholders may not be repaid • A failure of the Amortisation Test will constitute a CBG Event of Default and prompt an acceleration of the covered bonds

Amor

tisat

ion

Test

The sum of the Amortisation Test Outstanding Principal Balance of each Mortgage Loan, shall be the lower of: i.the actual Outstanding Principal Balance of the relevant Mortgage Loan; and ii.the aggregate of the Indexed Valuation of each Property relating to the Mortgage Loan, multiplied by M, where M=0.8 for each Mortgage Loan that is not a Defaulted Loan and M=0 for each Defaulted Loan

less the aggregate sum of Mortgage Loans in breach of Reps and Warranties

Out

stan

ding

Cov

ered

Bon

ds

(A$

equi

v.)

≥ −

Cash in the GI Account +

Substitute Assets & Authorised Investments

x x WA remaining maturity of all Covered Bonds outstanding

Principal Amount of all Covered Bonds outstanding

Negative Carry Factor (zero whilst IRS in place)

═


ABS Suite A stand alone system which identifies all securitised mortgages for APOLLO Trusts and Covered Bond Trust. All transactions established under the Master Trust Deeds are structured in the system.

• All relevant data from Suncorp Lending and Origination Systems imported to ABS Suite as well as uploading other relevant data to the system such as LMI policy details, Hardship Applications, APM Data for indexation to ensure ABS Suite has all information required

Import Data

• Create Pools using Account, Collateral and Group Level Data. Finalise Pools for new Trusts and Substitutions to On-Balance Sheet transactions & Covered Bond Pool Selection

• Includes Loan Level calculations, aggregation, stratification for cash flow and reporting purposes and also performs relevant tests such as the Asset Coverage Test for Covered Bonds

Collateral Servicing

• ABS Suite generates all Investor Reports and Trust Accounting Journals Investor Reporting & Accounting


Investor Reporting All reports will be available under the Suncorp Bank webpage, under Treasury Funding then select Covered Bonds. http://www.suncorpbank.com.au/financial -services/treasury/wholesale-funding

Contacts


Simon Lewis Andrew Power Maddalena Gowing Adam Parry Katie Taylor-Groth

Executive Manager - Funding, IRRM & FX Sales Senior Manager - Wholesale Term Funding Senior Manager - Securitisation & Covered Bonds Senior Manager - Institutional Funding Institutional Funding

[email protected] [email protected] [email protected] [email protected] [email protected]

+61 7 3362 4037 +61 7 3362 4016 +61 7 3362 4038 +61 7 3362 4031 +61 7 3362 4049

http://www.suncorpbank.com.au/financial-services/treasury/wholesale-funding

http://www.suncorpbank.com.au/financial-services/treasury/wholesale-funding

mailto:[email protected]





Important disclaimer

This report contains general information which is current as at 04 August 2016. It is information given in summary form and does not purport to be complete.

Please note all references are in Australian Dollars ($) unless otherwise disclosed.

It is not a recommendation or advice in relation to the Group or any product or service offered by Suncorp or any of its subsidiaries. It is not intended to be relied upon as advice to investors or potential investors, and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice, when deciding if an investment is appropriate. This report should be read in conjunction with all other information concerning Suncorp filed with the Australian Securities Exchange (ASX).

The information in this report is for general information only. To the extent that the information may constitute forward-looking statements, the information reflects Suncorp’s intent, belief or current expectations with respect to our business and operations, market conditions, results of operations and financial condition, capital adequacy, specific provisions and risk management practices at the date of this report. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties, many of which are beyond Suncorp’s control, which may cause actual results to differ materially from those expressed or implied. Suncorp undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this report (subject to ASX disclosure requirements)


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Debt Investor Update FY16 Covered Bond - Suncorp … GROUP LIMITED ABN 66 145 290 124 RELEASE DATE 4...

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